The migration in recent years to low-cost index strategies from actively-managed products has seen UK-listed exchange traded funds (ETFs) fees fall and trading spreads narrow as more ETF providers and brokers have looked to enter the ETF market. Retail investors are now able to get very low-cost exposure to the UK equity market, with the upfront attraction of no stamp duty payable on purchases.
In this article we list six ETFs that are leaders in their area, through a combination of charging low fees, tracking their benchmarks well, offering investors liquidity, tight dealing spreads, and – in some cases – doing something a little bit different from a traditional market capitalisation weight index.
In instances where there was not much to choose between competing products, we took size, daily volume and average bid-ask spreads into consideration.
Use our ETF screener to research the right UK equity ETFs for you. All the ETFs described below can be bought on IG’s share dealing platform, where commissions start at just £5 and there are no custody or platform fees.
iShares Core FTSE 100 UCITS ETF Dist (ISF)
There is very little to differentiate many FTSE 100 ETFs, with most ETF providers having a low-cost offering in this area. This ETF is part of the low-cost iShares core range, and along with the total return version (CUKX), represents a highly efficient way of getting exposure to the large cap FTSE 100. It owns all of the underlying stocks in the index, has an average bid-ask spread of just 0.03%, and with a market cap of £4.9 billion you can be confident that this ETF will be around in the long run.
Vanguard FTSE 250 UCITS Dist (VMID)
The FTSE 250 has historically outperformed the FTSE 100. With more of a UK domestic focus, it should perform better in the short term if the pound begins to regain some of its lost value against other currencies. This ETF has a low expense ratio of 0.1%, an average bid-ask spread of 0.19% and currently yields 3.1%.
SPDR FTSE UK All Share UCITS (FTAL)
Including both the FTSE 100 and FTSE 250, as well as small cap exposure, this ETF is a great way to get low-cost exposure to the broader UK equity market. It holds 452 UK stocks, covering approximately 98% of the market. It is total return, meaning that dividends are re-invested. That might suit investors that don’t need the income or want to avoid paying to re-invest the dividends. The total expense ratio is 0.2%.
Db X-trackers FTSE equal weight UCITS (XFEW)
Moving away from the traditional market cap indices is this offering from Deutsche Bank, which gives each share in the FTSE 100 index a 1% position and re-balances them on a six monthly basis. This takes away the concentration risk that the FTSE 100 has at the top of the index, giving more exposure to smaller companies. On the downside it has assets under management of £17.8 million, which may make it a little small for some investors.
UBS ETF (IE) MSCI United Kingdom IMI Socially Responsible UCITS (UKSR)
Whether you class yourself as a socially responsible investor or not, investors wary of oil and mining companies may find this ETF worthy of a second look. Launched on 29 October 2014 it has outperformed the FTSE All Share by 5.6% (to 30 April 2017), and has a low expense ratio of 0.28%.
SPDR S&P UK Dividend Aristocrats UCITS (UKDV)
The FTSE 100 itself has an attractive yield, but this ETF looks for evidence of dividend persistence, with an allocation to 30 top yielding stocks that have either maintained or grown their dividend over the past ten years. Its concentration means that it should not be used for an investor’s entire UK allocation, but as a long term position it adds interesting diversification to a portfolio. The total expense ratio is 0.3%. An alternative would be iShares UK Dividend (IUKD), which offers more diversification, but has a slightly higher TER of 0.4%.